Welcome to the LCCS blog!

LCCS is the first and only fully online Low Cost Corporate Services provider in HK.

Our platform is a very user-friendly website supporting company formation and providing virtual hosting (registered address), as well as company secretarial services to maintain Hong Kong limited companies statutory records properly, following Hong Kong laws and regulations.

LCCS also offers accounting solutions through another user-friendly online application, and supervision to issue management accounts as well as Annual Audit and Tax Filing coordination.

With LCCS, you do not need to install any software or backup your data because we are cloud based. All your data is automatically and safely backed up. And being cloud based, LCCS solutions are also available anytime, from anywhere.

This is how LCCS offers very competitive prices while maintaining a high-quality level of services.

Enjoy LCCS, a combination of DIY (1) and professional expertise that will help you save money on handling data while we back you up and save your time on submitting and updating records.

A revolutionary way to do company formation and maintenance. Simple and cheap, as it always should be!

(1) DIY: Do-It-Yourself.
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New Company vs. Shelf Company

Ever wondered what the difference is between setting up a new company versus buying a shelf company? Well all your questions are about to get answered. Just check out our latest graphic comparing both options so you can decide which one is really for you.

New Company vs. Shelf Company

Ready to take the next step?

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OR

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Do I Still Need To Meet Basic Requirements If My Company Is Not Operating, Dormant or Deregistering?

We are often approached by entrepreneurs who have set up their HK limited company, but it has been a while, perhaps even years, and they have not commenced any business yet. Usually, the following misconceptions arise out of this situation, the owner might think:

  • “My company is ‘dormant’ so I do not need to comply with some basic requirements”;
  • “If I officially register as dormant I will not need to comply with some basic requirements”; or
  • “If I deregister I can simply proceed to dissolve my company and will not need to meet basic requirements.”

All those statements are untrue, in fact, they couldn’t be further from the truth. Just check out our posts Non-Trading Company, Dormant & Deregistration, and Deregistration Quiz: Are You Ready? How To? And you’ll see that there are quite a few requirements that you will still need to attend to. Meanwhile, for a quick overview of what is still required to be done you can check out our summary below. But note that this is only a basic comparison, you are highly recommended to read our other articles to gain a better understanding of the specifics.

Note by “Non-Trading Company” we mean a company that is not operating, while a “Checkmark” means you must comply on a regular basis. For details as to how often each requirement needs to be attended to and estimated cost of obtaining assistance to handle them take a look at our post Can You Afford To Incorporate AND Maintain An HK Company?

Basic Requirements Table Non-Trading,-Dormant,-Dereg

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Getting Your Documents Notarized, Apostilled and/or Legalized in Hong Kong

Notarization, apostille, and legalization are all methods of authenticating documents. In a corporate setting, you may be required to authenticate corporate documents and agreements for use outside of the country of incorporation. Recent examples that we’ve come across where authentication of a Hong Kong company’s corporate documents by at least one of these methods was required include: for opening a bank account overseas; for opening a WOFE (Wholly Owned Foreign Enterprise) in China; or for entering into an agreement with a company incorporated and whose operations take place in another country. Perhaps you are in the process of one of these actions but don’t know where to start to get your documents notarized, apostilled and/or legalized. If that is the case, then keep reading and have your questions answered.

Notary, Apostille and Legalization of documents

What is the difference?

Notarization

Only a notary public can notarize a document, either certifying a legal document as genuine or an original, authenticating a signature or certifying or witnessing a person’s identity. Depending on what the notarization is being used for and what is required the notary public may:

• Issue a notarial certificate;
• Make a certified copy of an original document; and/or
• Witness the signing of a document.

In most cases, a Hong Kong Notary Public is sufficient, but there are some exceptions. For example, when setting up a WOFE, a Chinese Notary is usually required.

Apostille

An apostille is used specifically for authentication of public documents with the purpose of making them fully legally recognizable in a foreign country. If the document will be used in a country party to The Hague Convention, apostille will usually be sufficient; otherwise, legalization may be required.

In Hong Kong, only the High Court can issue an apostille. But note that not all documents are eligible to be apostilled. Particularly, Apostille can be obtained on:

• Public documents that bear the true signature of an official party; and
• Documents signed by a notary public or a Commissioner of Oaths in Hong Kong.

For specific examples of what types documents can be apostilled see here.

Legalization

A document will usually first have to be notarized and/or apostilled before it can be legalized. Whereas legalization is normally only required if the document will be used in a country that is not a party to The Hague Convention.

Only the embassy or consulate of the foreign country in which the document will be used can legalize a document.

So which one do I need?

Before doing anything, you should first ask the authority or entity to whom the authenticated documents will be presented to, exactly what it is they require. Notarization, apostille and legalization are very different actions and as you can see from the above they are obtained in very different ways. Depending on the authority or entity you are obtaining the authentication for, you may be required to obtain just one or even all of them. So be careful.

Need help getting a document notarized, apostilled, and/or legalized? We can help!

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Offshore Companies vs. HK Companies Operating Offshore

We often get asked if we can help to set up an offshore company. The short answer is yes. However, the term “offshore company” can imply very different things as you can have a company that has been incorporated offshore usually in an offshore financial center or a company that is operating offshore (for the purpose of this article we will focus on HK companies operating offshore). The difference between the two is substantial hence we’ve decided to write this article to help clarify what they both mean and to give a quick overview as to why some people might consider them as options.

Offshore Companies

Offshore Companies

An offshore company usually refers to a company incorporated in countries commonly considered as “tax havens” such as the British Virgin Islands, the Cayman Islands, the Seychelles, etc. The favorable tax conditions in these offshore jurisdictions is an obvious plus, but another reason some might consider setting up in these countries is that shareholder and director information is not made public. Despite the benefits, however, nowadays, due to the implementation of the Common Reporting Standard, it can be quite difficult if not impossible to open a bank account in HK for companies set up in these regions.

HK Companies Operating Offshore

On the other hand, you can have a company incorporated in Hong Kong that operates offshore i.e. its business activities are carried on outside of Hong Kong. Generally, people choose this type of set up in order to take advantage of Hong Kong’s territorial taxation system which means tax is charged on local income only, that is to say, profits derived offshore are not taxed. It’s important to note however that offshore status is not automatic; you must apply for it. For more details on how to apply, please read our articles Hong Kong Taxation System: How To Apply For Profits Tax Exemption? And Tax Exemption At A Glance.

Know What You Need

So, as you can see, if you are considering either of the above, it is important to understand what you need to avoid any costly mistakes when setting up. While now you have a better understanding of what it is you need you can properly communicate what you actually want. You can also better understand what people are referring to while some may even perpetuate the confusion between the 2 options, not to mention that they tend not to explain properly the consequences of each option especially in terms of tax and banking.

Something still not clear? Contact us.

Know what you want?
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OR

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How Can You Structure Your Business in HK?

If you’re thinking about setting up a business in Hong Kong, the first thing you should do is to consider the structure of your business. Considering our audience, we’ve decided to focus in on the most common types of business organization in Hong Kong for small to medium enterprises including the private limited company, sole proprietorship, partnership, branch office (a.k.a. the registered non-HK company), and representative office. Here we’re going to give you an overview of each of these business types to help you determine which one suits your needs best.

HK Company Organization Structure

Private Limited Company

A private limited company is considered to be more complex and expensive to set up and close down when compared to a sole proprietorship, partnership, and representative office. Meanwhile, this setup does require a bit more care due to the basic minimum requirements that must be met to keep the company legal. That said, in most cases, the benefits outweigh the disadvantages, which makes the private limited company the top choice for SMEs in Hong Kong.

So what are the advantages? A private limited company is a separate legal entity that can act as a natural person could; entering into agreements, sue or be sued, own property, etc. on behalf of its owners. This also means the owners are only liable for the amount they invest in the company. As a result, this type of entity is considered more stable, and it is, in turn, easier to find investors and source financing in comparison to the majority of other business types. Plus, private limited companies benefit from the territorial taxation system in HK which means 16.5% tax rate on profits derived from Hong Kong only, not to mention in HK we have no capital gains tax, sales tax, or VAT!

Last but not least, 100% foreign ownership of companies is permitted, so it is possible to set up a wholly-owned subsidiary company in Hong Kong making the private limited company a desirable choice for overseas companies looking to set up here as well.

Branch Office (Registered Non-HK Company)

For non-HK companies looking to set foot in Hong Kong, a branch office could be an option. A branch office is a legally registered entity that is considered as an extension of its foreign parent company i.e. it is not treated as a separate legal entity. This makes it a less attractive choice compared to setting up a subsidiary as mentioned earlier as it means that the parent company is liable for all the debts, etc. of its branch office. Even so, as there are fewer limitations for a branch office compared with the other option for foreign companies which is to set up a representative office, this could be considered the second-best choice after setting up a subsidiary for non-HK companies.

Representative Office

A representative office is very limited in that it is not considered a legal entity, i.e., it cannot enter into contracts, create invoices, etc. and is limited to non-profit making business activities such as marketing and research. The same as with a branch company, the parent company is fully liable for all debts, etc. of the representative office. On the other hand, this structure is easy to set up, there are no compliance requirements such as tax filing, maintaining accounts, etc. But due to the heavy limitations of this structure, this is only really an option for foreign companies wanting to explore the market and gain some exposure, or who simply want a presence in Hong Kong to carry out activities such as recruiting representative staff for instance.

Sole Proprietorship & Partnership

A sole proprietorship can be a good choice for sole owners intending to run a small low-risk business. It is easy to set up and to close down, while there is no restriction as to the type of business you can operate (providing it is legal of course!). That said, generally, a sole proprietorship is not recommended because the sole owner is 100% liable for the debts of the business, and the risky nature of this structure makes it almost impossible to find investors and source financing. Moreover, it is only really an option for HK residents, as non-residents must have a local agent to set up.

A partnership and a sole proprietorship are very similar, the main difference being that you must have at least two or more persons to set up a partnership. There are two types, a general and a limited partnership. The liability of partners in a general partnership is unlimited. While a limited partnership allows one or more partners to limit their liability to the amount they have invested in the business.

So… Which One Should You Choose?

The type of business organization you choose will depend on your particular setup, but some main points you should consider are (i) the amount of risk your business will involve; (ii) how many founders there are; (iii) how you intend to finance your business; (iv) how you plan to develop the business in future; and (v) whether you reside in Hong Kong or not.

That said, considering the exposure in terms of risk for partnerships and limitations regarding activities in some cases for sole proprietorships, partnerships, branch office, and representative office, versus a limited company. Overall, except in very particular circumstances, such as a sole HK resident wanting to initiate a very small business to test it out for example, a limited company could be considered to be the optimal organization structure.

Ready to incorporate? LCCS can help.

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 Want to talk to someone? Check out our website chat or drop us a message!

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Tax Exemption At A Glance

Contrary to popular belief, you cannot set up a company with offshore status in Hong Kong. You must apply for tax exemption in order to obtain this status. Check out our quick guide below to find out if you’re eligible, and how you can go about applying for tax exemption for your Hong Kong company. Have 5 minutes to spare? Check out our article Hong Kong Taxation System: How To Apply For Profits Tax Exemption?

Tax Exemption Hong Kong

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Big News! HK Business Registration Fee Waiver To Expire On 1 April 2017

For the past year, HK companies have been benefitting from the waiver of the HKD2,000 Business Registration Fee per the Revenue (Reduction of Business Registration Fees) Order 2016 (“2016 Order”). The 2016 Order, however, is about to expire on the 1 April 2017; this means that the fee to obtain or renew the Business Registration of a company will go back up to HKD2,250 (HKD2,000 business registration fee + HKD250 levy). Some providers might urge you to set up your HK company before the expiry in order to save HKD2,000, but first, we think you should consider, does it really make sense?

HK BR fee expired

First, take into consideration that HKD2,000 will not make a big difference when setting up a company. What we mean to say is, if you are scrambling to save that amount, you are likely not prepared to set up your company in the first place. We estimate you need a minimum of HKD15,355* which includes the costs to obtain the assistance of a professional, which is recommended to save you from making mistakes and incurring, even more, fees. Check out our article Can You Afford To Incorporate AND Maintain An HK Company for more info on the very minimum you should be prepared for.

Meanwhile, sooner or later you will need to pay the full HKD2,250 anyway as HK companies are required to renew their Business Registration every year. So, while you may save HKD2,000 initially by setting up before the 1 April 2017, the following year on the anniversary of your company you will need to pay the HKD2,000 whereas no one can tell if the next budget will include a waiver or not.

Finally, the expiry date of the waiver is in 3 weeks from now. Unless you really rush, you may not even have enough time to actually file before April 1st.

In conclusion, the only question that really matters is “Am I ready to set up a company or not?” Don’t be tempted to rush to meet the deadline just to save HKD2,000, because, in the end, you may end up with the problem of trying to maintain a company that you simply can’t afford.

Think you are ready to launch the process? LCCS can help.

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Still have queries? Check out our blog or feel free to get in touch!

* Before the expiration of the waiver!

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Filing For Bankruptcy in HK?

While it is important to know how to start up a company, it is equally as important to understand what options you have should you face the unfortunate situation of having to close your company down. Companies with no debt and that have updated records can consider deregistration which we’ve already written an article and even made a quiz about. But what if a company has debts, and there is no hope of making a comeback? Many would think to file for bankruptcy, but in Hong Kong, there is no formal insolvency process protection to a company in dire circumstances from its creditors. What we do have is a process called winding up of a company, but it is not the same as in the US or UK where you can file for bankruptcy with zero cents in the bank, winding up costs, and it costs quite a lot.

Bankruptcy and Winding Up for HK companies

Voluntary winding up and compulsory winding up are the two main ways a Hong Kong company can be wound up. In some cases, the Companies Registry may strike off your company from their records or very rarely to avoid winding up altogether a Scheme of Arrangement can be considered. Below we explain each option in more detail.

Voluntary winding up

Voluntary winding up is usually implemented when shareholders of a company as the name suggests voluntarily decide to wind up the company. It is easier than the process of compulsory winding up and can be commenced by a special resolution of the shareholders resolving that the company will be wound up. Then the next step will depend on the solvency of the company.

If the company is solvent, the directors will make a certificate of solvency; then the shareholders will appoint a liquidator (commonly known in Hong Kong as a trustee) who will take control of the winding up process.

If the company is insolvent, then the company shall call a meeting of the creditors which involves giving notice in local newspapers and the Government’s Gazette. Once this is done, the creditors can then appoint a liquidator who will take over the process.

Compulsory winding up

Compulsory winding up, on the other hand, is done by application to the court. This method is usually used by creditors when debts are unpaid, or by shareholders when there are shareholders’ disputes or oppression of minority shareholders.

It is also possible for shareholders of a company to pass a special resolution for its winding up by the court, but this is rarely practiced due to the legal costs involved. Shareholder’s normally opt to voluntarily wind up instead so there will be no need to go through complicated and costly court procedures.

Schemes of Arrangement

An option to save a company from having to wind up altogether is to enter into a Scheme of Arrangement or reconstruction. It is also, however, a complicated and costly process. Essentially it is a proposal to pay all creditors in a certain manner to fully discharge all debts (usually less than full payment). It requires the approval of a specified majority of the creditors and sanction of the court. But in practice, it is almost never used for small companies.

Strike off by the Companies Registry

In some cases, where a company fails to meet the necessary filing requirements of the Companies Registry, the Companies Registry can also strike off the company from their records if they have reasonable cause to believe that the company is not in operation or carrying on business. But from experience, it is quite a rare occurrence for the Companies Registry to exercise this power not to mention unpredictable. The Companies Registry appear to use this power mainly as a “cleaning up” method to clear out any longstanding stagnant companies in their records.

Overall, it’s Expensive…

While the very reason for winding up is the fact that there is no money available to pay off existing debts, ironically the process of winding up is expensive. In the case of winding up by application to the court, the process is very expensive due to the legal fees involved. Comparatively, the costs for voluntary winding up are much cheaper, but still, the process is far from cheap. The reason being that the company may have to engage a CPA and/or sometimes even lawyers to assist in handling the procedures and documentation. There will also be costs for advertising through newspapers, the Gazette, etc.

Implications

Because of the costs, very often companies with financial problems will not wind themselves up. But instead, they will leave it to their creditors to do so and to bear all the related costs. Of course, there is the possibility that the creditor may not take action to wind up particularly in cases where the chance of recovering anything will be very slim as they will deem it not worthwhile to take any action. This, however, means that the company is left in a state of limbo, so it is useless but also cannot be shut down.

What to do?

We hope you don’t, but if you find yourself in a situation where you need to consider winding up, we would suggest that you take action sooner rather than later. Unless there is really a good chance that the business can recover, you would be better off winding up the company voluntarily while you are still able to. Winding up is the best way to officially declare your company as insolvent and the closest option to bankruptcy that you’ll have.

Think you may be able to consider deregistration instead? LCCS can help investigate.

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Or talk to an LCCS agent via our website chat.

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Deregistration Quiz: Are You Ready? How To?

We spoke briefly about deregistration in our article Non-Trading Company, Dormant Company & Deregistration, but we knew we could help those considering deregistration further. It’s not hard to do but depending on your case there can be quite a few things you need to do to complete the process. So, to give you a better idea of what is involved we thought we’d share with you this quiz that will help you both prepare for deregistration and show you the main steps involved.

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Can You Afford To Incorporate AND Maintain An HK Company?

There’s no denying the feeling you get when you are starting your very own business. You’ve got your idea, and you want to get it setup right away. Great! But, before going any further, we’d like to give you a piece of advice; don’t get caught up in the excitement. Setting up a company is a long-term responsibility. Once set up that is not the end of it! Don’t get us wrong; we don’t want to dampen your plans, but having seen many an entrepreneur make this mistake we simply had to write about it. We already touched on this topic briefly in our 6 Tips You Should Keep In Mind When Incorporating A Company, tip no.2: Remember, you are required to manage the company after it is incorporated! But now we’re going to elaborate on this point so you can better understand just how much time and money it takes to maintain a company.

CANVAFORZOHO_Holding Piggy Bank

To begin with, there are three main areas of maintenance that you should keep in mind; these include, the legal requirements, accounting, and audit, as well as profits and employer’s tax filing. Overall there are few basic requirements, but they all must be met, and they must be met correctly. There are no shortcuts!

Legal Requirements

First and foremost a Hong Kong company must maintain proper records; any changes made to the company such as change of name, address, changes to directors particulars, transfer/allotment of share or appointment of director, must be reported to the Companies Registry. Even if there are no changes, there are at least 2 compulsory requirements which are the business registration renewal (BRC) and filing of annual return (AR) and both must be done on a yearly basis.

Accounting & Audit

Accounting and audit are related to the Profits Tax Return (see below). You must have accounting to do the audit, while apart from a few exceptions you need to have audited accounts to file the Profits Tax Return. Having said that it is important to note that audit is compulsory.

Profits Tax Return & Employer’s Tax Return

Regardless of whether you have profit or employees, you must file a Profits Tax Return and Employer’s Tax Return respectively. They are necessary declarations that must be made to the Inland Revenue Department.

In Summary…

To make it easy, we’ve summarized all the basic post-incorporation requirements and minimum costs below. We’ve included a professional fees section under which we have put LCCS’s fees, to reflect the potential cost of appointing a service provider. But be aware that the cost of appointing a service provider can vary greatly. As such, you can choose to replace that column with the costs of other service provider fees you may consider or no fees at all if you decide to do things yourself.

Keep in mind, however, as we have mentioned on many occasions, while you may be able to handle some of the requirements yourself, it is highly advisable to appoint a service provider to handle the majority of them to avoid mistakes, delays, and penalties. To help you gauge which ones you can easily handle yourself, we’ve marked the difficulty of each requirement, whereas * = easy and *** = difficult.

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